The One to Four Family Residential Contract is one of the most used real estate contracts in Texas. Many of my clients are often confuses by some of the wording. I decided to take the contract apart and talk about each section. I hope this will help my clients as well as those other agents who are not interested in higher learning. Note: This document is to be used by Licensed Realtors only. It is not permitted to use this contract if you are not represented by a Realtor.
Any information gained form this post should be used at users own risk. We (Neuhuas Realty Group LLC, or Ed Neuhuas), do not take responsibility for problems arising from the misuse of this information. Use at your own rick, or better yet, hire a REALTOR. If you need help constructing the contract but don’t want to hire a Realtor, give us a call, we can write it up for a small fee. Please note, this copy of the contract is out dated. For more up to date resources contact site Amin for your agent login.
Paragraph 1: Parties to this contract.
This one is self explanatory. We need the full legal names of the buyer and sellers. It is very important that the buyers use the name they with to take title of the property. It is also important to show marital or other relationship status. For example: Edward K Neuhaus Jr. and Lindsey Fatheree Neuhaus, a married couple. Or John Q. Smith and David J. Peters, single individuals.
Paragraph 2 : Property
Ok we all know we are buying Real Estate, but many things are included in a property. Just check out section “B”. Yes the carpet stays, unless listed in section “D”. Buyers, if it is attached to the house in someway it comes with the house unless the sellers specify here. Sellers, specify what you are not willing to sell with the property. It is not a problem to list things here if you are worried about them.
Paragraph 3 : Sales Price
Time for a little simple math. Sales price is very simple. I like to start by writing down the total price first and doing all the math from there. That way I can’t screw up the amount of the offer. Getting the amount of down payment vs. amount financed is not as big of a deal as changing the sales price.
Paragraph 4 : Financing
This is a brief out line of specific financing the buyer intends to obtain. This section will no be used if the buyer is paying cash. This section also says that the property must meet the lenders approval for the contract to move forward. Using this section may require the 3rd Party Financing Addendum.
Paragraph 5 : Earnest Money
Earnest Money is misunderstood by many people. This money is consideration for the contract. Most contracts need one. Earnest money can range anywhere from $500 to 1% of the sales price. A lot of agents use $1,000. I am not sure why but that is how it is. Sometimes, sellers ask for more earnest money if they are going to do a specific repair that the buyers have asked for. This is not unreasonable, the money does go toward your down-payment. Also important to note, that money is held in Escrow by an independent third party.
Paragraph 6 : Title Policy and Survey
There is a lot of info in this paragraph. Starting with the title policy, it is very common for the seller to pay for the title policy in Texas. Often it will be issued by the same title company that is handling the closing. Title commitment, Read it, the title company will get it to you in less than 20 days. The survey, this is a great place to negotiate. Surveys are not very expensive so sometime you can change who pays for the survey to get something else you want. Hopefully nothing comes up on the survey that will be a problem. If the sellers have not living in the house a long time they can use an old survey. HOA membership is in the Paragraph as well.
Paragraph 7 : Property Condition
The property condition section refers to everything we need to know about who, what, when, where, and why we are getting an inspection. The buyer must indicated if he has received the disclosure notice or not. Most people think that you should check D2 and leave it blank, so you can ad in the items you want repaired later. That is not really how it works. If you know of something you would like repaired before you wright the contract you can list it here. If not then check D1 and we can amend the contract before the option is up. Residential service contract is also called a home warranty. Not every seller does them but it is a small cost paid at closing for buyer peace of mind.
Paragraph 8 & 9 : Brokers’ Fees and Closing
Brokers’s fees are not actually part of this agreement, although they always come with them. Paragraph 9 talks about the closing. It specifies a date when everyone will come together and sign papers to sell the house. This is not the same day you are moving. Buyers do not have movers showing up the day of closing. Things can get very interesting when that happens.
Paragraph 10 & 11: Possession & Special Provisions
Most of the time Possession of the property changes hands when all the papers are signed and the mortgage company funds the mortgage. This however is not the only way. Possession can happen before or after closing if a lease back is signed. Be sure to get a large deposit with the lease if you plan to lease back. Make sure you get the property the way you want it. Special Provisions is a handy but dangerous part of this contract. Anything placed in this section can affect many parts of the contract. Be very cautious of what you put in this section.
Paragraph 12 : Settlement
Buying a home is expensive. Some times settlement charges can be shared by both parties. Most of the time it just makes for another thing to argue over. Keep it simple.
Paragraph 13-17 : Details
These sections really just out line some details, read them, there maybe a test. The only option you have in these sections is to check if you are willing to go to mediation. I would suggest it unless you are an attorney.
Paragraph 18 : Escrow
This section outlines who can be an Escrow Agent, what they do, and how they do it.
Paragraph 19-21 : Representations, Federal Tax, Notices
Federal Tax Requirements help the government get tax money from foreign nationals who buy and sell property in this country. Notices are really the section you fill out your address. The place you would like your notices from the title company sent.
Paragraph 22 : Agreement of Parties
This is where we attach other documents to the contract. It allows us to have a shorter contract and attach only those items that need to be attached.
Paragraph 23 & 24 : Termination option and Consult an Attorney
The termination option is your one get out of jail free card. You pay for it with option money. $100 is very customary for anything under $500,000, and usually will get you 10 days to inspect the property and ask for repairs. As always, if you do not understand anything in this document you should ask your agent. Realtors are not attorneys nor should they offer legal advice. If you would like to alter the docuement in any way please talk with your attorney.